Prices soared by 9.1 percent in June compared with a year ago, a new peak with inflation remaining at 40-year highs, driven in large part by higher energy prices.
June inflation soared 9.1% amid high gas prices
Inflation is showing few signs of letting up, compounding the pressure on the Federal Reserve and White House to ratchet up their response — and convince the American public that they can significantly slow the economy without causing a recession. Financial markets were set to open lower sharply on Wednesday’s news.
Driving the stunning jump was the energy index, which rose 7.5 percent compared with May, and contributed nearly half of the overall increase in inflation. The energy index includes prices for fuel, oil, gasoline and electricity, and it’s up 41.6 percent for the year, the largest 12-month increase since April 1980.
Gasoline was up 11.2 percent in June, underscoring the economic toll Russia’s invasion of Ukraine has had on global energy markets. There’s hope that upcoming inflation data will ease down a bit, since energy and gas prices have fallen consistently in the past month. The national average for a gallon of gas ticked down to $4.63 on Wednesday, according to AAA.
Few aspects of daily life have been left untouched by inflation’s continued rise. The food index rose 1 percent in June and is up 10.4 percent compared with the previous year, the largest 12-month increase since February 1981. The price of chicken has ballooned 19 percent in the past year, the biggest increase ever.
Rent also rose 0.8 percent in June, compared with the month before, as the cost of simply keeping a roof overhead is becoming more and more out of reach for families nationwide.
“It’s important that policymakers address the public,” said Joe Brusuelas, chief economist at RSM. “At this point, we’re talking about food, gasoline and housing. That does not make for a happy household.”
Even “core inflation,” a measure closely studied by economists because it strips out volatile categories like food and energy, was on the rise in June.
Officials at the Federal Reserve and White House are desperate to see policies intended to crack down on inflation yield more results. Inflation dominates as the economy’s biggest problem, increasing the risk that the Fed will have to slow the economy and raise interest rates so forcefully that it causes even more pain or triggers job losses.
Raising interest rates is the main tool to reverse inflation by making a whole host of lending — from mortgage rates to auto loans — more expensive, which then slows demand and cools off the economy.
The June data covers a particularly bleak period: Consumer sentiment sank last month to a low not seen since the 1980 recession, according to a closely watched University of Michigan survey. That decline heightened concerns that the Fed is losing the confidence of the public and financial markets — a major challenge in its fight against inflation.
“The offenders, again, were all too familiar to consumers, those being gasoline, food, and shelter. With their sentiment at the lowest level in years, consumers have a right to be highly distraught,” Mark Hamrick, senior economic analyst at Bankrate, wrote in an analyst note. “They’re facing a combination of high and sustained inflation robbing them of purchasing power.”
Financial markets have been down sharply this year, as investors react to the Federal Reserve’s moves tightening monetary policy. The June inflation report set off fears on Wall Street that the Federal Reserve would have to move more aggressively to get prices under control in the months to come.
Before markets opened, the Dow Jones industrial average, the S&P 500 and tech-heavy Nasdaq were all poised to shed more than 1 percent of their value on Wednesday’s inflation report.
Fighting inflation is mostly the Fed’s job, but the Biden administration has also struggled to lower prices for American families. High inflation has clobbered Biden’s popularity, and last month’s run-up in gas prices to a nationwide average topping $5 a gallon made more people feel even gloomier about the economy. For more than a year, Republicans have hammered Democrats for overspending on covid relief efforts, and the GOP is poised to make inflation a major focus of its midterm campaigns this year.
“Working families are struggling to make ends meet as they continue to face the worst inflation in more than 40 years,” Sen. John Barrasso (R-Wyo.) said in a statement. “The price of groceries, gas, rent, and utilities are skyrocketing. All while paychecks aren’t keeping up … Working families in Wyoming cannot afford to pay the huge price of President Biden’s failed economic agenda.”
Speaking to reporters on Tuesday, White House officials noted that gas prices have fallen in recent weeks. Still, White House officials said it was too early to determine whether energy prices have peaked, and that much will depend on how the war in Ukraine continues to weigh on global energy markets.
However, there are also some signs of progress in the broader economy. Higher interest rates are cooling the housing market, as prospective buyers back away from higher mortgage payments, and new home construction slows. There are reports that those moves could be trickling down into lower sales prices in some markets.
The latest jobs report also showed the U.S. labor market maintained its torrid pace in June, adding 372,000 new positions and keeping the unemployment rate at a low 3.6 percent. Corporate earnings and consumer spending have remained resilient.
In Houston, Three Brothers Bakery has been open for 73 years, most recently surviving a fire, Hurricane Harvey and the 2021 Texas freeze. The latest test is high inflation, which has sent prices for key ingredients like honey and unsalted butter soaring. Eggs are up more than 300 percent compared with last year. President and co-owner Janice Jucker said she expects that the war in Ukraine could send prices for flour even higher by the holidays, the busiest time of the year.
Even as recession fears grow elsewhere in the economy, Jucker said what matters to her is how people feel about their ability to buy goodies for their loved ones. “It’s when things aren’t great, that’s what we worry about,” she said. Jucker doesn’t know if people will begin to decide they just can’t swing $4 for one of the bakery’s beloved gingerbread men.
“It’s still something people come in and they get all the time, and I worry at some point they may say, ‘no,’ ” Jucker said.
The Fed hiked interest rates by three-quarters of a percentage point in June, marking its sharpest increase since 2000. In the past few weeks, several Fed leaders have suggested that another hike of three-quarters of a percentage point may be necessary at their next policy meeting later this month.
The Fed’s argument is that the economy, though burdened by high inflation, is still solid enough to withstand higher interest rates.
“The U.S. economy for now is strong. Spending is strong. Consumers are in good shape. Businesses are in good shape,” Fed Chair Jerome H. Powell told the Senate Banking Committee on June 22. “Monetary policy is famously a blunt tool. And there’s risk that weaker outcomes are certainly possible. But they’re not our intent.”
Source: WP
